The 2020 McKinsey Global Payments Report

Global Banking Practice

The 2020

McKinsey Global

Payments Report

October 2020

Foreword

The public health crisis triggered by COVID-19 has

had an impact on nearly all aspects of daily life for

people across the globe, and has put the world

economy on an uncertain footing. For the payments

industry, the pandemic and its consequences

have accelerated a series of existing trends in both

consumer and business behaviors, and introduced

new developments, such as a restructuring of both

supply chains and cross-border trade. Ongoing

shifts toward e-commerce, digital payments

(including contactless), instant payments, and

cash displacement have all been significantly

boosted in the past six months. And while a degree

of reversion to past behavior is likely for some of

these shifts, the overall trajectory for these trends

has received a strong push forward. Overall, the

crisis is compressing a half-decade¡¯s worth of

change into less than one year¡ªand in areas that

are typically slow to evolve: customer behavior,

economic models, and payments operating models.

As with most structural shifts, challenges will

inevitably arise.

The impact of the crisis has not been consistent

across sectors or geographies, of course. Travel and

entertainment, which had been among the most

advanced e-commerce sectors, was hit particularly

hard and faces an uncertain path to recovery.

Payments providers in regions that have lagged

in digitization, meanwhile, in many cases possess

greater potential for revenue increases in the new

environment. On the other hand, a protracted period

of low interest rates, which began before the current

crisis, will pressure payments revenues, as will a

persistent slowdown in economic activity.

This is the context in which we release our annual

report on the global payments industry. As always,

these insights are informed by McKinsey¡¯s Global

Payments Map and by continuing dialogue with

practitioners throughout the payments ecosystem.

Given the impact of the changes and challenges

in 2020, however, we are taking a different lens to

our analysis, focusing more on the current moment

and on the future, than on examining past growth.

Our first chapter briefly tells the story of 2019¡ªa

The 2020 McKinsey Global Payments Report

solid year with broad-based revenue growth¡ªbut

focuses primarily on current developments and

takes a forward-looking view of the payments

landscape. It also details the actions we believe

payments providers will need to take to weather

the pandemic and position themselves for the

¡°next normal.¡±

Our ¡°now-cast¡± analysis of 2020 paints a contrast

between the first and second halves of the year¡ª

namely, an estimated 22 percent payments revenue

decline in the first half will be softened somewhat

by stronger performance in the second half. Still, we

expect full-year 2020 global payments revenue to

be roughly 7 percent lower than it was in 2019¡ªa

$140-billion decline roughly equal to recent years¡¯

annual gains, and 11 to 13 percent below our prepandemic projection. Beyond this, in some countries

and segments, the likely sustained increase in

digital penetration could result in a recovery of

revenue pools to levels matching our pre-COVID-19

expectations for 2021.

In following chapters, we explore four areas of

payments we consider critical to achieving success

in the context of accelerated change. Like many

aspects of payments, the merchant-acquiring

business was already undergoing significant

transformation. Consolidation had driven scale

economy imperatives, and non-bank market

entrants were gaining inroads with underserved

verticals. Our experts detail the need to redefine

acquiring offerings to encompass a full suite of

value-added services extending well beyond

payments settlement¡ªincluding fraud controls and

cart optimization for the fast-growing e-commerce

segment. In a separate chapter we look at the

specific opportunity for small- and medium-size

enterprises, a segment that has historically been

expensive to serve for large incumbents, but which

has been the focus of many fintech attackers and is

well overdue for a closer look.

Supply chain finance has long been considered

to be a source of untapped value, but unlike other

payments sectors, has struggled to develop enough

momentum to address its structural challenges.

2

Given an expected increased focus on working

capital, a step change in digital adoption at scale,

and the potential geographic re-shuffling of roughly

$4 trillion of cross-border supply chain spending in

the next five years¡ªthe value embedded in supplychain finance will become even more attractive. The

question is whether it will be enough to spur a longanticipated transformation.

operating model to meet the growing imperatives

for efficiency, scale, modularity (e.g., Payments-asa-Service), and global interoperability. With many

banks likely unwilling to commit the hundreds of

millions of investment dollars needed to modernize

existing payments infrastructure, we outline various

paths worth considering before more focused

players can establish an insurmountable advantage.

Finally, in this overview of global payments, we

look at a challenge many established payments

providers are facing¡ªthe need to transform the

We hope you find the insights in these pages

thought-provoking and valuable as you navigate

these uncertain times.

Alessio Botta

Leader, Europe Payments Practice

Marie-Claude Nadeau

Co-leader, North America Payments Practice

Phil Bruno

Co-leader, North America Payments Practice

Gustavo Tayar

Leader, Latin America Payments Practice

Reet Chaudhuri

Leader, Asia Payments Practice

Carlos Trascasa

Leader, Global Payments Practice

McKinsey¡¯s Global Banking Practice leaders would like to thank the following colleagues for their

contributions to this report: Maria Albonico, Fabio Cristofoletti, Vaibhav Dayal, Olivier Denecker, Nunzio

Digiacomo, Puneet Dikshit, Alberto Farroni, Diana Goldshtein, Reinhard H?ll, Reema Jain, Baanee Luthra,

Tobias Lundberg, Yaniv Lushinsky, Pavan Kumar Masanam, Albion Murati, Tamas Nagy, Marc Niederkorn,

Nikki Shah, Lit Hau Tan, and Jonathan Zell.

The 2020 McKinsey Global Payments Report

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The accelerating

winds of change in

global payments

The COVID-19 crisis is having a significant and

widespread effect on global payments across sectors.

The most striking and potentially lasting impact is

an accelerating pace of change in the industry.

Philip Bruno

Olivier Denecker

Marc Niederkorn

For the global payments sector, the events of

2020 have reset expectations and significantly

accelerated several existing trends. The public

health crisis and its many repercussions¡ªamong

them, government measures to protect citizens and

rapid changes in consumer behavior¡ªchanged the

operating environment for businesses, large and

small, worldwide. For the payments sector, global

revenues declined by an estimated 22 percent in the

first six months of the year compared to the same

period in 2019. We expect revenues to recover (only

to a degree) in the second half of 2020, ending 7

percent lower than full-year 2019. Over the past

several years, payments revenues had grown

by roughly 7 percent annually, which means this

crisis leaves revenues 11 to 13 percent below our

prepandemic revenue projection for 2020.

Given the impact of COVID-19 on the operating

environment, we are diverging from our usual

approach of delivering perspectives on the current

year¡¯s global payments landscape relative to the

prior year. Instead, we focus primarily on the state

of the payments ecosystem in 2020 and explore the

actions payments providers need to take to compete

effectively in the ¡°next normal.¡±

The insights in this report are informed by

McKinsey¡¯s proprietary Global Payments Map, which

for over 20 years has provided a granular, databased view of the industry landscape.

A half decade of change in a few

months

For global payments, 2020 stands in dramatic

contrast to the year before, which was a relatively

The 2020 McKinsey Global Payments Report

stable year. Global revenues grew at nearly 5 percent

in 2019, bringing total global payments revenue

to just under $2 trillion (Exhibit 1). Payments also

continued to grow faster than overall banking

revenues, increasing its share to just under 40

percent, compared with roughly one-third only five

years earlier.

Any stability was quickly disrupted in early 2020

by changing geopolitics coupled with reactions

to the COVID-19 pandemic, both public (physicaldistancing measures, limits on business activity) and

private (anticipatory and causal shifts in consumer

and commercial behavior). As a result of the publichealth crisis, payments revenues in the first six

months of 2020 contracted by an estimated 22

percent (roughly $220 billion) relative to the first six

months of 2019. We expect full-year 2020 global

payments revenue to be roughly $140 billion lower

than in 2019¡ªa decline of about 7 percent from

2019¡ªa change equal in size to prior years¡¯ annual

gains, which leaves revenues 11 to 13 percent below

our prepandemic revenue projection for 2020.

What we already know

Once COVID-19 moved from a local outbreak to

a global pandemic, many governments moved

to protect their citizens, leading to lockdowns

with various degrees of limitation. The immediate

consequence was, of course, a steep reduction

in discretionary spending and a severe demandside shock, along with reductions in cash usage.

Discretionary spending initially sank by 40 percent

globally. The impact was especially great on the

travel and entertainment category, which was off 80

to 90 percent. While some categories of spending

4

Exhibit 1

McKinsey expects global payments revenues to end 2020 down 7% compared to 2019.

Global payments revenue, $ trillion

Current estimate

Pre-COVID-19 estimate

7.4%

1.9

0.1

1.5

Latin America

1.1

0.3

EMEA

0.3

0.4

North America

0.4

Asia-Paci?c

Share of banking

revenues

0.3

0.6

0.4

0.5

2.0

0.2

2.12

0.4

0.26

-7%

0.5

1.9

0.9

0.9

2010

2014

2018

2019

28%

33%

38%

39%

1.9

2020E

Note: Figures may not sum to listed totals, because of rounding.

Source: McKinsey Global Payments Map

rebounded, consumers¡¯ well-documented shift from

the point of sale (POS) to digital commerce accounts

for the reduced use of cash.

Overall, in retail, the impact was not a decline but

a shift in buying behavior. In the first six months of

the year, consumers spent $347 billion online with

US retailers, up 30 percent from the same period

in 2019¡ªcorresponding to six times the annualized

2019 growth rate of online retail.1 Amazon¡¯s secondquarter 2020 numbers recorded 40 percent

year-over-year growth, boosted in particular by

the tripling of grocery sales. In Europe, differences

in shopping behavior between geographies were

strongly reduced and differences between age

groups eroded as many consumers (in particular,

older shoppers) turned to online shopping for

the first time.

Consequently, all forms of electronic peer-to-peer

and consumer-to-business payments have been

1

2

3

boosted. In many regions, this has mostly benefited

debit cards, which typically align with lower-value

transactions and are a logical cash substitute for

contact-averse consumers. Switzerland reported

an increase in share of debit-card spending from

65 percent to 72 percent between January and

May 2020,2 mostly at the expense of cash. Higher

limits for contactless payments also triggered rising

adoption rates across the globe, making inroads

beyond debit¡¯s typical domain of smaller-value

transactions. For credit cards, the picture is more

nuanced; consumers in certain geographies seemed

to be paying off credit-card balances in preparation

for challenging times ahead. In Australia, for

example, credit-card share among total card

spending fell by five percentage points between

February and June 2020, in favor of debit cards. 3 In

Asia, however, alternative payments, such as instant

and mobile payments, grew, while credit cards

retained their strong incumbent position supporting

Fareeha Ali, ¡°Charts: How the coronavirus is changing ecommerce,¡± Digital Commerce 360, August 25, 2020, .

¡°Payments and cash withdrawals,¡± Swiss National Bank, data.snb.ch, last modified September 21, 2020.

Retail payment: May 2020,¡± Reserve Bank of Australia, .au, July 7, 2020.

The 2020 McKinsey Global Payments Report

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